November 16, 2023
FDI stands for Foreign Direct Investment, which means investing in a country other than your home country. It involves direct capital inflows from one country to another. FII stands for Foreign Institutional Investors, these are large companies and institutions that invest in overseas countries’ financial markets.
FDI, FPI, and FII are three terms discussed concerning the foreign investment arena. They may seem to be similar on its face but are fundamentally different. While the internet is filled with articles explaining the difference between FDI and FII, decoding the ‘what’ and ‘how’ of FII is tricky. Because the information available lacks clarity.
So, we took up this endeavor of investigating the matter and finding out what is what. Here’s our humble attempt to do so. We have tried to put our words in as simple a manner as possible.
Content:
- What is FDI?
- What is FII?
- FDI vs FII(Difference Between FDI and FII)
- FAQ(Frequently Asked Questions)
- Quick Summary
What is FDI?
FDI stands for Foreign Direct Investment, which means investing in a country other than your home country. It involves direct capital inflows from one country to another. FDI is generally seen as an accelerator for economic growth.
You must be wondering who all are eligible to be a Foreign Direct Investor!
As per the Reserve bank of India:
Foreign Direct Investment (FDI) can be made by a person resident outside India, foreign corporations, and institutions in the following ways.
- in an unlisted Indian company;
- in 10 percent or more of the post-issue paid-up equity capital on a fully diluted basis of a listed Indian company.
Read more about FDI by clicking here.
What is FII?
FII stands for Foreign Institutional Investors, these are large companies and institutions that invest in overseas countries’ financial markets. It refers to foreign entities investing in the nation’s financial markets.
FII examples are hedge funds, insurance companies, investment banks, and mutual funds. FII is an essential source of capital in developing economies.
FDI vs FII – Foreign Direct Investment vs Foreign Institutional Investors
Considering the crucial factors, below is the difference between FDI and FII for your easy understanding.
| Factors | FII | FDI |
| Meaning | When an investment is made by foreign companies in a non-native country’s stock market, then it is known as FII. | When a company situated in one country invests in a company located abroad, it is known as FDI. |
| Investment’s Entry and Exit | Easy. | Difficult. |
| What does it bring? | Long/Short term capital. | Long-term capital. |
| Transfer of | Funds only. | Funds, resources, technology, strategies, know-how, etc. |
| Economic Growth | Yes. | Yes. |
| Outcomes | Increase in the capital of the country. | Increase in the country’s Gross Domestic Product (GDP). |
| Target | No such target, investment flows into the financial market. | Investment is made in a specific company. |
| Control over a company | In FII, the investors can invest in foreign countries’ financial markets without any managerial hold over a company. | Investors have higher control over the company and are involved in the management. |
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:
FAQ(Frequently Asked Questions)
Which is Better, FDI or FII?
Technically looking, FDI is the investment made in the Primary Markets of the country, and FII is the investment made in the Secondary Market of the country. From the development point of view, FDI is more favorable than FII for a country’s economic growth.
Quick Summary
- FDI, FPI, and FII are terms generally used while discussing foreign investment.
- FDI (foreign direct investment) is nothing but investing in a country other than the home country, which involves direct capital inflows from one country to another.
- FII (foreign institutional investors) are large companies and institutions that invest in the nation’s financial markets.
- Difference between FDI and FII: Entry and exit in FII are easy and difficult with FDI.
- Investment in FII is in the form of funds only, while in FDI, it could be in any form, such as funds, resources, technology, etc.
Vikas Yadav is a professional writer who also happens to be an engineer. He's been creating Content for a long time, but it was his fascination and zeal for the stock market that steered him in the right direction. He is eager to increase knowledge about the "power of investment" through his collaboration with Alice Blue by creating high-quality educational content for the public at large. If you want to comprehend difficult subjects in simple terms, he's your man.
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I'm Vikas Yadav, a seasoned writer with a background in engineering, and I've delved deeply into the intricate realm of the stock market. My passion for the stock market has driven me to produce high-quality educational content, collaborating with institutions like Alice Blue. My aim is to demystify complex subjects and empower the public with a deeper understanding of the power of investment.
Now, let's dissect the concepts presented in the article titled "Difference Between FDI and FII – Do They Help in a Country’s Economic Growth?".
Foreign Direct Investment (FDI): FDI refers to investing in a country other than one's home country, involving direct capital inflows. It is widely recognized as a catalyst for economic growth. Eligible FDI contributors, as per the Reserve Bank of India, include persons residing outside India, foreign corporations, and institutions. FDI can take the form of investing in an unlisted Indian company or holding 10 percent or more of the post-issue paid-up equity capital on a fully diluted basis of a listed Indian company. The impact of FDI on economic growth is significant, leading to an increase in a country's capital.
Foreign Institutional Investors (FII): FII stands for Foreign Institutional Investors, comprising large companies and institutions that invest in the financial markets of overseas countries. Examples of FII entities include hedge funds, insurance companies, investment banks, and mutual funds. FII serves as a crucial source of capital in developing economies. Unlike FDI, FII involves investments in a nation's financial markets rather than direct ownership in companies. The impact of FII is notable in the form of long-term capital infusion.
Differences Between FDI and FII:
- Meaning: FII involves foreign companies investing in a non-native country's stock market, while FDI is when a company in one country invests in a company located abroad.
- Investment's Entry and Exit: FII allows for easy entry and exit, while FDI involves a more challenging process.
- What it brings: FII brings funds only, whereas FDI brings funds, resources, technology, strategies, know-how, etc.
- Economic Growth: Both FDI and FII contribute to economic growth, with FDI leading to an increase in a country's capital and FII contributing to the country's Gross Domestic Product (GDP).
- Target: FII does not have a specific target; investment flows into the financial market. In FDI, investment is made in a specific company.
- Control over a Company: FII investors do not have managerial hold over a company. In contrast, FDI investors have higher control over the company and are involved in the management.
Conclusion and Expert Opinion: Technically, FDI is associated with Primary Markets, and FII is linked to Secondary Markets. From a developmental standpoint, FDI is considered more favorable for a country's economic growth. This conclusion is supported by the fact that FDI involves direct ownership and brings not only capital but also resources, technology, and strategic know-how.
As an enthusiast with a deep understanding of these concepts, I encourage further exploration of related topics such as the primary and secondary markets, IPOs and FPOs, bull vs. bear markets, online trading, and other crucial areas within the stock market landscape.
